Shengtai Pharmaceutical, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - Shengtai Pharmaceutical, Inc.	v222172_ex32-1.htm
EX-31.2 - Shengtai Pharmaceutical, Inc.	v222172_ex31-2.htm
EX-31.1 - Shengtai Pharmaceutical, Inc.	v222172_ex31-1.htm
EX-32.2 - Shengtai Pharmaceutical, Inc.	v222172_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________ to _____________

Commission file number: 000-51312

SHENGTAI PHARMACEUTICAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		54-2155579
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Changda Road East, Development District, Changle County, Shandong, The People’s Republic of China		262400
(Address of principal executive offices)		(Zip Code)

011-86-536-6295802

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 10, 2011, there are 9,584,912 shares of $0.001 par value common stock issued and outstanding.

FORM 10-Q

SHENGTAI PHARMACEUTICAL, INC.

INDEX

		Page

PART I.	Financial Information

	Item 1. Financial Statements.	3

	Consolidated Balance Sheets as of March 31, 2011 and June 30, 2010 (Unaudited)	3

	Consolidated Statements of Income and Other Comprehensive Income for the Three and Nine Months Ended March 31, 2011 and 2010 (Unaudited)	4

	Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2011 and 2010 (Unaudited)	5

	Notes to Unaudited Consolidated Financial Statements as of march 31, 2011	6

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	25

	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	32

	Item 4. Controls and Procedures.	32

PART II.	Other Information

	Item 1. Legal Proceedings.	33

	Item 1A. Risk Factors.	33

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	33

	Item 3. Defaults Upon Senior Securities.	33

	Item 4. Reserved.	33

	Item 5. Other Information.	33

	Item 6. Exhibits.	34

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2011 AND JUNE 30,2010

(UNAUDITED)


A S S E T S
	MARCH 31,		JUNE 30,
	2011		2010

CURRENT ASSETS:
Cash & cash equivalents	$	2,236,822	$	4,121,541
Restricted cash		6,392,400		16,556,904
Accounts receivable, net of allowance for doubtful accounts of $2,397,643 as of March 31, 2011 and $1,306,268 as of June 30, 2010, respectively		11,603,946		8,365,822
Notes receivable		2,607,438		2,410,512
Other receivables		785,235		450,284
Inventories		13,415,547		11,072,170
Prepayments and other assets		3,479,905		545,590
Total current assets		40,521,293		43,522,824

PLANT AND EQUIPMENT, net		79,464,688		75,373,851

OTHER ASSETS:
Investment in Changle Shengshi Redian Co., Ltd.		7,061,828		6,372,294
Advances for construction		-		2,334,748
Intangible assets - land use right, net of accumulated amortization		3,212,932		3,150,894
Total other assets		10,274,761		11,857,936

Total assets	$	130,260,741	$	130,754,611

L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y

CURRENT LIABILITIES:
Accounts payable and accured liabilities	$	4,615,603	$	9,508,631
Accounts payable and accrued liabilities - related party		1,077,720		252,017
Notes payable - banks		9,436,400		17,823,300
Short term loans		46,360,120		40,153,980
Accrued liabilities		787,300		412,555
Other payable		1,158,601		1,315,797
Employee loans		279,659		396,404
Other payable - officer		532,850		515,856
Customer deposit		6,696,853		4,162,046
Taxes payable		1,646,334		1,456,474
Long term loan-current matunties		-		2,314,983
Total current liabilities		72,591,441		78,312,043

LONG TERM LIABILITIES
Other payable - noncurrent		-		3,346,336
Total long term liabilities		-		3,346,336

Total liabilities		72,591,441		81,658,379

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 2,500,000 shares authorized,
no shares issued and outstanding as of March 31, 2011 and June 30, 2010		-		-
Common stock, $0.001 par value, 50,000,000 shares authorized,
9,584,912 shares issued and outstanding as of March 31, 2011 and June 30, 2010		9,585		9,585
Additional paid-in capital		21,498,295		21,314,815
Statutory reserves		3,953,515		3,214,800
Retained earnings		25,257,786		19,351,772
Accumulated other comprehensive income		6,950,120		5,205,259
Total shareholders' equity		57,669,301		49,096,231

Total liabilities and shareholders' equity	$	130,260,741	$	130,754,611

The accompanying notes are an integral part of this statement.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

CONSOLIDATE STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2011 AND 2010

(UNAUDITED)


	THREE MONTHS ENDED MARCH 31,						NINE MONTHS ENDED MARCH 31,
	2011			2010			2011			2010
NET SALES	$	41,686,161		$	29,407,287		$	125,375,589		$	81,043,203

COST OF SALES		35,258,900			23,750,131			107,029,421			67,595,344

GROSS PROFIT		6,427,261			5,657,155			18,346,168			13,447,859

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		2,491,968			3,078,030			7,175,162			7,358,396

INCOME FROM OPERATIONS		3,935,293			2,579,125			11,171,006			6,089,464

OTHER (EXPENSE) INCOME:
Earnings on equity investment		145,111			98,366			376,244			445,475
Non-operating income		18,343			28,266			95,954			227,628
Non-operating expense		(74,914	)		(244,326	)		(276,766	)		(260,672	)
Interest expense and other charges		(785,351	)		(1,025,088	)		(2,336,043	)		(2,667,406	)
Interest income		4,682			(775	)		76,716			-
Other income (expense), net		(692,129	)		(1,143,558	)		(2,063,895	)		(2,254,976	)

INCOME BEFORE PROVISION FOR INCOME TAXES		3,243,162			1,435,568			9,107,111			3,834,488

PROVISION FOR INCOME TAXES		937,985			457,443			2,462,382			1,020,304

NET INCOME		2,305,177			978,125			6,644,729			2,814,184

OTHER COMPREHENSIVE ITEMS:
Foreign currency translation adjustments		153,180			819			1,744,861			62,453

COMPREHENSIVE INCOME	$	2,458,357		$	978,944		$	8,389,590		$	2,876,637

EARNINGS PER SHARE
Basic	$	0.24		$	0.10		$	0.69		$	0.29
Diluted	$	0.24		$	0.10		$	0.69		$	0.29

WEIGHTED AVERAGE NUMBER OF SHARES
Basic		9,584,912			9,584,912			9,584,912			9,584,912
Diluted		9,584,912			9,584,912			9,584,912			9,584,912

The accompanying notes are an integral part of this statement.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED MARCH 31, 2011 AND 2010

(UNAUDITED)

	NINE MONTHS ENDED MARCH 31,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,644,729		$	2,814,184
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation		5,336,701			5,788,007
Amortization		42,103			41,921
Changes of allowance for bad debts		1,031,396			(267,635	)
Share based compensation to employees		183,480			476,454
Loss on equipment disposal		112,354			-
Gain on disposal of land use right		-			(739	)
Earnings on equity investment		(376,244	)		(445,475	)
Change in operating assets and liabilities:
Accounts receivable		(3,089,170	)		164,973
Notes receivable		580			(1,434,298	)
Other receivables		333,225			172,506
Inventories		(2,037,695	)		(4,453,863	)
Prepayments and advance to employees		(3,816,540	)		(567,691	)
Accounts payable		(5,127,682	)		978,820
Accrued liabilities		360,801			99,975
Accounts payable - related party		804,432			97,249
Other payable		(328,935	)		534,969
Customer deposit		2,358,568			2,511,505
Taxes payable		139,180			834,908
Net cash provided by operating activities		2,571,283			7,345,770

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase plant and equipment		(778,845	)		(3,130,993	)
Proceeds from equipment disposal		-			2,535
Additions to construction in progress		(3,854,359	)		-
Advances for construction		-			(6,880,574	)
Acquisition of land use right		-			(47,395	)
Loan to related party - non-current		(855,385	)		(1,467,000	)
Net cash used in investing activities		(5,488,589	)		(11,523,426	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in restricted cash		10,164,504			17,588,755
Borrowings on notes payable - banks		7,340,200			-
Principal payments on notes payable - banks		(16,178,400	)		(20,255,200	)
Borrowings on short term loans		(14,186,060	)		11,272,220
Principal payments on short term loans		18,979,660			-
Borrowings on employee loans		106,733
Principal payments on employee loans		(234,615	)		(264,562	)
Borrowings on third party loan		-			-
Principal payments on third party loan		-			(248,336	)
Borrowings on long term loans		4,799,292			-
Payments on long term loans		(4,799,292	)		-
Payment on capital lease obligation		(5,757,404	)		(1,793,980	)
Net cash provided by financing activities		234,617			6,298,897

EFFECTS OF EXCHANGE RATE CHANGE IN CASH		797,971			62,453

INCREASE (DECREASE) IN CASH & CASH EQUIVELENTS		(1,884,719	)		2,183,694

CASH & CASH EQUIVELENTS, beginning of period		4,121,541			1,779,476

CASH & CASH EQUIVELENTS, end of period	$	2,236,822		$	3,963,170

SUPPLEMENTAL DISCLOSURE
Cash paid for Interest, net of capitalized interest	$	1,409,316		$	2,752,591
Cash paid for Income taxes	$	1,719,891		$	1,673,702
Non-cash long term prepayment transferring into construction in progress	$	2,374,374		$	1,673,702
Non-cash construction in progress transferring into plant and equipment	$	2,617,116		$	-

The accompanying notes are an integral part of this statement.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Note 1 - Organization background and principal activities

Shengtai Pharmaceutical, Inc, the "Company,” was incorporated in March 2004 in the State of Delaware. The Company, through its direct and indirect subsidiaries, manufactures and distributes glucose and starch as pharmaceutical raw materials, other starch products and other glucose products such as corn meals, food and beverage glucose and dextrin. The Company's manufacturing operations are in the People's Republic of China, the "PRC,” and the Company sells its products both in China and overseas.

Note 2 - Summary of significant accounting policies

The reporting entity

The consolidated financial statements of Shengtai Pharmaceutical, Inc. and its subsidiaries reflect the activities of the parent and its wholly-owned subsidiaries Shengtai Holding, Inc., “SHI,” and Weifang Shengtai Pharmaceutical Co., Ltd., “Weifang Shengtai.” The Company recorded all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2010 annual report filed on Form 10-K. The results of the three-month period and nine-month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the full fiscal year ending June 30, 2011.

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All material inter-company transactions and balances have been eliminated in the consolidation.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation of the Company's consolidated financial statements relate to the assessment of the fair value of stock based compensation, and the collectability of accounts receivable. Actual results could be materially different from these estimates upon which the carrying values were based.

Foreign currency translation

The reporting currency of the Company is the US dollar. The Company uses the Chinese Renminbi, "RMB,” as its functional currency. The results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rates at the balance sheet dates, and equity is translated at the historical exchange rates. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding accounts on the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statements of shareholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Assets and liabilities were translated at 6.57 RMB and 6.81 RMB to $1.00 at March 31, 2011 and June 30, 2010, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to income statement for the three months ended March 31, 2011 and 2010 were 6.57 RMB and 6.82 RMB to $1.00. The average translation rates applied to income statement for the nine months ended March 31, 2011 and 2010 were 6.68 RMB and 6.82 RMB to $1.00. Cash flows are also translated at average translation rates for the period; therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Revenue recognition

The Company recognizes revenue when the goods are delivered, title has passed, pricing is fixed, and collection is reasonably assured. Sales revenue represents the invoiced value of goods, net of value-added tax (“VAT”), and estimated returns of product from customers. Most of the Company’s products sold in the PRC are subject to a VAT rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished products and certain freight expenses. The Company allows its customers to return products only if its products are later determined by the Company to be ineffective. Based on the Company’s historical experience, product returns have been insignificant throughout all of its product lines. Therefore, the Company does not estimate deductions or allowance for sales returns. Sales returns are taken against revenue when products are returned from customers. Sales are presented net of any discounts given to customers. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposit.As of March 31,2011 and June 30,2010,customer deposit amounted to $6,696,853 and $4,162,046,respectively.

Shipping and handling

Shipping and handling costs related to costs of goods sold are included in selling, general and administrative expenses. Shipping and handling costs related to costs of good sold amounted to $1,804,764 and $1,094,597 for the three months ended March 31, 2011 and 2010, respectively. Shipping and handling costs amounted to $ 4,077,604 and $3,368,291 for the nine months ended March 31, 2011 and 2010, respectively.

Financial instruments

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1:	inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:	inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3:	inputs to the valuation methodology are unobservable and significant to the fair value.

Stock-based compensation

The Company records stock-based compensation expense using the Black-Scholes option pricing model, which requires the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Stock-based compensation expense is recognized based on awards expected to vest. Forfeitures are estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates. There were no estimated forfeitures in the current period as the Company has a short history of issuing options

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Earnings per share

Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

The following is a reconciliation of the basic and diluted earnings per share:

	Three months ended March 31,
	2011		2010
Net income for earnings per share	$	2,305,177	$	978,125
Weighted average shares - basic and diluted		9,584,912		9,584,912
Earnings per share - basic and diluted	$	0.24	$	0.10

	Nine months ended March 31,
	2011		2010
Net income for earnings per share	$	6,644,729	$	2,814,184
Weighted average shares - basic and diluted		9,584,912		9,584,912
Earnings per share - basic and diluted	$	0.69	$	0.29

For the three and nine months ended March 31, 2011, no warrants or stock options were included in the calculation of diluted earnings per share because there are no diluted effects for the three and nine months ended March 31, 2011.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.

Restricted cash

The Company through its bank agreements is required to keep certain amounts on deposit that are subject to withdrawal restrictions. As of March 31, 2011 and June 30, 2010, these amounts totaled $6,392,400 and $16,350,000, respectively. A large amount of cash was released from the restricted cash account after bank notes matured.

In accordance with the Escrow Agreement and the Share Purchase Agreement signed by Shengtai Holding Inc., West Coast Car Company, Chinamerica Fund LP and Tri-State Title & Escrow, LLC, the "Escrow Agent,” the Company was required to deposit with the Escrow Agent $5,500,000 immediately on the Closing Date of the Share Purchase Agreement. This fund can only be disbursed when certain criteria are met. As of March 31, 2011 and June 30, 2010, the undisbursed amounts were $0 and $206,604, respectively. On August 25, 2010, after full compliance with the Escrow Agreement, a total amount of $ 207,216 was released from the Escrow account under Tri-State Title & Escrow, LLC., and the Escrow account was closed.

Accounts receivable

In the normal course of business, the Company extends credit to its customers without requiring collateral or other security interests. Management reviews its accounts receivables at each reporting period to provide for an allowance against accounts receivable for an amount that could become uncollectible. This review process may involve the identification of payment problems with specific customers. The Company estimates this allowance based on the aging of the accounts receivable, historical collection experience, and other relevant factors, such as changes in the economy and the imposition of regulatory requirements that can have an impact on the industry. These factors continuously change, and can have an impact on collections and the Company’s estimation process. These impacts may be material. Certain accounts receivable amounts are charged off against allowances after designated period of collection efforts. Subsequent cash recoveries are recognized as income in the period when they occur. The allowance for doubtful accounts amounted to $2,397,643 and $1,306,268 as of March 31, 2011 and June 30, 2010, respectively.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Concentrations of risk

The Company's operations are in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among others.

Management believes the credit risk on bank deposits is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies, or state-owned banks in China. Cash includes cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC and the United States of America. The cash deposits in U.S. financial institutions exceed the amounts insured by the U.S. government. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. At March 31, 2011 and June 30, 2010, the Company’s bank balances exceeded government insured limits or not covered by insurance by approximately $8,617,495 and $20,470,585, respectively. The Company has not experienced, nor does it anticipate, nonperformance by these institutions.

The Company’s concentrations of credit risk are primarily in trade accounts receivable and accounts payable. For the three and nine months ended March 31, 2011 and 2010, there were no customers that individually comprised 10% or more of the Company’s total revenues. For the three and nine months ended March 31, 2011 and 2010, there were no vendors that individually accounted for over 10% or more of the Company’s total purchases.

As of March 31, 2011, there are two customers accounting for 10% or more than 10% of total accounts receivable. Weifang Century-light Industry Co.,Ltd accounted for 13.58% of total accounts receivable and from H.K.W. accounted for 18.68% of total accounts receivable.

As of March 31, 2011, no vendors accounted for 10% or more than 10% of total accounts payable.

For export sales, we frequently require significant down payments or letter of credit by our customers prior to shipment. During the year ended June 30, 2010 and the nine months ended March 31, 2011, the Company maintains export credit insurance to protect the Company against the risk that the overseas customers may default on settlement.

The following table summarizes financial information for the three and six months ended March 31, 2011 and 2010, concerning the Company’s revenues based on geographic area:

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

	Three months ended March 31,
	2011		2010
China	$	30,296,415	$	21,803,054
International		11,389,746		7,604,233
Total	$	41,686,161	$	29,407,287

	Nine months ended March 31,
	2011		2010
China	$	99,795,115	$	63,205,440
International		25,580,474		17,837,763
Total	$	125,375,589	$	81,043,203

Inventories

Inventories are stated at the lower of cost (weighted average basis) or market and consist of the following:

	March 31, 2011		June 30, 2010
Raw materials	$	4,228,758	$	2,739,503
IWork-in-progress		3,445,083		4,343,957
Finished goods		5,741,706		3,988,710
Total	$	13,415,547	$	11,072,170

The Company reviews its inventory periodically for possible obsolete goods or to determine if any reserves are necessary. As of March 31, 2011, the Company has determined that no reserves are necessary.

Prepayments

Prepayments represent partial payments or deposits for inventory purchases. These advances are interest free and unsecured.

Advance for construction

Advance for construction represent advance for construction. As of March 31, 2011 and June 30, 2010, the advance for construction amounted to $0 and $2,334,748. Advance for construction are paid to unrelated parties, interest free, and with no collateral and no guarantee.

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation. Additions and improvements to property and equipment accounts are recorded at cost. Maintenance, repairs, and minor renewals are charged directly to expense as incurred. Major additions and betterments to property and equipment accounts are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets with 3% residual value.

Estimated useful lives of the assets are as follows:

	Estimated Useful Life
Buildings		5-20	Years
Machinery and equipment		5-10	Years
Automobile facilities		5-10	Years
Electronic equipment		5-7	Years

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Long-lived assets of the Company are reviewed at least annually or more often if circumstances dictate, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows- from related operations. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2011, the Company expects these assets to be fully recoverable.

Investment in unconsolidated affiliate

Equity method investments are recorded at original cost and adjusted to recognize the Company’s proportionate share of the investee’s net income or losses and additional contributions made and distributions received. The Company recognizes a loss if it is determined that other than temporary decline in the value of the investment exists.

Intangible assets

Intangible assets consist of the following:

	March 31, 2011			June 30, 2010
Land use rights:	$	3,566,439		$	3,451,619
Less: accumulated amortization		(358,544	)		(306,261	)
Land use rights, net		3,207,895			3,1 45,385

Software		8,048			7,789
Less: accumulated amortization		(3,010	)		(2,254	)
Software, net		5,038			5, 536

Total intangible assets, net		3,212,932			3,150,894

Intangible assets are primarily comprised of land use rights which are pledged as collateral for bank loans as of March 31, 2011. All land in the PRC is owned by the Chinese government. However, the government grants “land use rights” for terms ranging from 20 to 50 years. From March 2000 to June 2008, the Company acquired various land use rights for approximately $3,291,000. From July 2008 to March 2009, the Company acquired various land use rights for approximately $480,520. The Company amortizes the cost of land use rights over the usage terms using the straight-line method.

Intangible assets are reviewed at least annually and more often if circumstances dictate, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2011, the Company determined that there had been no impairment. Total amortization expense for the nine months ended March 31, 2011 and 2010 amounted to $42,103 and $41,921 respectively. Total amortization expense for the three months ended March 31, 2011 and 2010 amounted to $14,154 and $13,757 respectively.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

The following table consists of the expected amortization expenses for the next five years:

Years ended March 31,	Amount
2011	$	56,000
2012		56,000
2013		56,000
2014		56,000
2015		56,000
Thereafter		2,932,932
Total	$	3,212,932

Income taxes

The Company accounts for income taxes using the asset and liability method whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized. As of March 31, 2011and June 30, 2010, the Company did not have any deferred tax assets or liabilities, and as such, no valuation allowances were recorded at March 31, 2011 and June 30, 2010.

The Company evaluates uncertain tax positions using a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

The Company’s operations are subject to income and transaction taxes in the United States and in the PRC jurisdictions. Significant estimates and judgments are required in determining the Company’s worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, and as a result the ultimate amount of tax liability may be uncertain. However, the Company does not anticipate any events that would lead to changes to these uncertainties.

Value Added Tax

Enterprises or individuals who sell products, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with Chinese laws. The standard value added tax rate is 17% of the gross sales price, however, for the Company’s corn, the VAT rate is 13%. A credit is available whereby VAT paid on the purchases of semi-finished products, raw materials used in the production of the Company’s finished products, and payment of freight expenses can be used to offset the VAT due on sales of the finished products.

VAT on sales and VAT on purchases amounted to $ 4,963,530 and $ 5,237,092 for the three months ended March 31, 2011, and $3,360,667 and $3,053,788 for the three months ended March 31, 2010, respectively. VAT on sales and VAT on purchases amounted to $ 15,919,087 and $ 16,013,780 for the nine months ended March 31, 2011, and $9,758,780 and $9,279,263 for the nine months ended March 31, 2010, respectively. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not impacted by the income tax holiday in the PRC.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Guarantees

From time to time, the Company guarantees the debt of others unrelated to the Company. Pursuant to ASC 460 (Formerly FIN 45, “Guarantor’s Accounting for and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,”) the Company must record guarantees at the fair value of the expected future payments. However, the Company estimates that it will not be required to make any payments under these guarantees based on the past experience and the financial condition of the companies to which the guarantees were made.

Recently issued accounting pronouncements

In December 2010, the FASB issued amended guidance related to Business Combinations. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company will assess the impact of these amendments on its consolidated financial statements if and when an acquisition occurs.

In December 2010, the FASB issued amended guidance related to intangibles—goodwill and other. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

Note 3 - Plant and equipment

Plant and equipment consist of the following:

	March 31, 2011			June 30, 2010
Buildings	$	25,192,142		$	22,028,136
Machinery and equipment		65,960,892			65,019206
Automobile facilities		649,215			656,544
Electronic equipment		598,453			527,609
Construction in progress		14,583,391			10,533,083
		106,984,093			98,764,578
Less: Accumulated depreciation		(27,519,405	)		(23,390,727	)
Total	$	79,464,688		$	75,373,851

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Construction-in-progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. No depreciation is provided for construction-in-progress until such time as the assets are completed and placed into service.

Depreciation expense for the three months ended March 31,2011 and 2010 amounted to $1,776,286 and $1,957,539, respectively. Interest costs totaling $252,909 and $0 were capitalized into construction-in-progress for the three months ended March 31,2011 and 2010, respectively. Depreciation expense for the nine months ended March 31,2011 and 2010 amounted to $5,336,701 and $5,788,007, respectively. Interest costs totaling $675,480 and $78,468 were capitalized into construction-in-progress for the nine months ended March 31,2011 and 2010, respectively.

Note 4 - Investment in unconsolidated affiliate

On September 16, 2003, the Company entered into a joint venture partnership with Weifang City Investment Company and Changle Century Sun Paper Industry Co., Ltd, and formed Changle Shengshi Redian Co., Ltd (“Changle Shengshi”). Changle Shengshi was incorporated in Weifang City, Shandong Province, PRC. Changle Shengshi’s principal activity is to produce and sell electricity and heat. The Company accounts for this 20% investment under the equity method of accounting.

Summarized unaudited financial information of Changle Shengshi is as follows:

	March 31, 2011		June 30, 2010
Current assets	$	41,503,239	$	24,083814
Non-current assets		69,435,410		51,248,756
Total assets	$	110,938,648	$	75,332,569

Current liabilities	$	76,202,459	$	43,098,908
Non-current liabilities		578,551		1,164,071
Shareholders' equity		34,157,638		31,069,590
Total liabilities and shareholders' equity	$	110,938,648	$	75,332,569

Summarized unaudited financial information of Changle Shengshi for the nine months ended March 31,2011 and 2010 is as follows:

	Nine months ended March 31,
	2011			2010
Net sales	$	55,955,132		$	37,132,454
Gross profit		7,554,120			5,903,459
Income before taxes		3,305,465			4,077,990
Net income	$	2,479,099		$	3,051,161
Percentage of ownership		20	%		20	%
Company share of income	$	495,820		$	610,232
Elimination of intercompany profit		(119,576	)		(164,757)	)
Company’s share of net income	$	376,244		$	445,475

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Note 5 - Related party transactions

The Company’s utilities are mostly provided by Changle Shengshi (See Note 4). As of March 31, 2011 and June 30, 2010, the Company’s accounts payable due to Changle Shengshi was approximately $1,077,720 and $252,017, respectively, which related to a portion of the Company’s utilities being provided by Changle Shengshi. The utilities expense amounted to approximately $4,121,248.60 and $5,261,978 for the three months ended March 31, 2011 and 2010, respectively. The utilities expense amounted to approximately $11,291,526.60 and $12,504,449 for the nine months ended March 31, 2011 and 2010, respectively.

Note 6 - Debt

Short term loans

Short term loans represent amounts due to various banks which are normally due within one year, and these loans can be renewed with the banks. The Company’s short term bank loans consisted of the following:

	March 31, 2011		June 30, 2010
Loans from Bank of China, due various dates from April 2010 to February 2012; monthly interest only payments; interest rates ranging from 5.5755% to 6.3630% per annum, guaranteed by an unrelated party and secured by certain properties.	$	14,915,600	$	14,730,000
Loan from Bank of China, due various dates from January 2011 to October 2011; monthly interest only payments; interest rate of 5.88% per annum, guaranteed by Letter of Credit Card		2,739,600		-
Loans from Industrial and Commercial Bank of China, due various dates from Auguest 2010 to March 2012; monthly interest only payments; interest rate ranging from 5.31% to 6.372% per annum, guaranteed by an unrelated third party and secured by certain properties.		8,310,120		9,662,880
Loan from Agriculture Bank of China, due various dates from June 2010 to December 2011; monthly interest only payments; interest rates ranging from 5.841% to 6.116% per annum, guaranteed by an unrelated third party, unsecured		7,610,000		8,838,000
Loan from China Merchants Bank, due from October 2010 to October 2011, monthly interest only payments; interest rate of 5.56% per annum, secured by certain properties.		3,044,000		-
Loan from Qingdao Bank, due from December 2010 to December 2011, monthly interest only payments; interest rate of 6.11% per annum, guaranteed by an unrelated third party, unsecured		3,044,000		2,946,000
Loan from Minsheng Bank, due September 2011; monthly interest only payments; interest rate of 5.841% per annum, guaranteed by an unrelated third party, unsecured.		1,522,000		-
Loan from Zhongxin Bank, due from March 2011 to October 2011, monthly interest only payments; interest rates ranging from 6.06% to 7.0902% per annum, guaranteed by an unrelated third party, unsecured		1,826,400		3,240,600
Loan from Shenzhen Development Bank, due March 2011, monthly interest only payments; interest rate of 6.06% per annum, guaranteed by an unrelated third party, unsecured		3,348,400		3,240,600
Loan from Dezhi Zheng, an individual, from March 5, 2010 to March 4, 2011; monthly interest of 0.7%; principal and interest payments due on March 4, 2011; guaranteed by Mr. Qingtai Liu		-		736,500
Total	$	46,360,120	$	40,153,980

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Notes payable - banks

Notes payable represent amounts due to various banks which are normally due within one year, and these notes can be renewed with the banks. The Company’s notes payables consisted of the following:

	March 31, 2011		June 30, 2010
Weifang Bank, due from October 2010 to June 2011, 0.07% transaction fee,, guaranteed by inventory pledge.	$	6,088,000	$	-
Bank of China, due on various dates from November 2009 to April 2010, 0.05% transaction fee, and restricted cash required 50% to 100% of loan amount, guaranteed by an unrelated third party.		-		8,383,000
Industrial and Commercial Bank of China, due on various dates from August to October 2009, 0.05% transaction fee, restricted cash required 50% of loan amount, guaranteed by an unrelated third party.		-		1,767,600
Industrial and Commercial Bank of China, due from September 2010 to March 2011, 0.05% transaction fee, restricted cash required 50% of loan amount, guaranteed by an unrelated third party.		-		1,178,400
Bank of Qingdao, due in July 2010, 0.05% transaction fee, and restricted cash required 100% of loan amount, guaranteed by an unrelated third party.		-		2,946,000
Loan from Shenzhen Development Bank, due from March 2011 to September 2011, 0.05% transaction fee, and restricted cash required for 100% of loan amount, and guaranteed by an unrelated third party.		3,348,400		3,039,300
Total	$	9,436,400	$	17,823,300

Employee loans

From time to time, the Company borrows monies from certain employees for cash flow purposes. These loans do not require collateral, and the principal is due upon demand. Before January 1, 2009, the interest rate was at 7.2% for the first six months, and then 10.8% thereafter until the full principal amounts are paid by the Company. After January 1, 2009, the interest rate was changed to 7.2% for the loan period. Employee loans amounted to $279,659 and $396,404 as of March 31, 2011 and June 30, 2010, respectively. Interest expense related to these loans amounted to $0 and $18,700 for the nine months ended March 31, 2011, and 2010, respectively. Interest expense related this loan was de minimis for the three months ended March 31, 2011, and 2010, respectively.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Employee loan - officer

From time to time, the Company borrows monies from Qingtai Liu, The Company’s CEO and President for cash flow purposes of the Company. The loan does not require collateral and the principal is due upon demand. Before January 1, 2009, the interest rate was at 7.2% for the first six months, and then 10.8% thereafter until the full principal amounts are paid by the Company. After January 1, 2009, the interest rate was changed to 7.2% for the loan period. Employee loan from officer amounted to $532,850 and $515,856 as of March 31, 2011 and June 30, 2010, respectively. Interest expense related this loan was de minimis for the three and nine months ended March 31, 2011, and 2010, respectively.

Third party loan

From time to time, the Company borrows money from unrelated third parties for use in operations. The loan does not require collateral, interest free, and the principal is due upon demand. Balances as of March 31, 2011 and June 30, 2010 were $0 and $0, respectively. Interest expense related this loan was de minimis for the three and nine months ended March 31, 2011, and 2010, respectively.

Interest

Total interest expense and financial charges, net of capitalized interest, for the three months ended March 31, 2011,and 2010 on all debt, amounted to $785,351 and $1,025,088, respectively. Interest capitalized into construction-in-progress totaled $252,909 and $0 for the three months ended March 31, 2011 and 2010, respectively. Total interest expense and financial charges, net of capitalized interest, for the nine months ended March 31, 2011 and 2010 on all debt, amounted to $2,336,043 and $2,667,406, respectively. Interest capitalized into construction-in-progress totaled $675,480 and $13,097 for the nine months ended March 31, 2011 and 2010, respectively.

Note 7 - Income taxes

Before January 1, 2008, the Company was governed by the Income Tax Law of the PRC concerning Foreign Investment Enterprises (“FIEs”) and Foreign Enterprises and various local income tax laws (the “Income Tax Laws”). Under the Income Tax Laws, FIEs are generally subject to an effective income tax of 33% (30% state income taxes plus 3% local income taxes) on income as reported in their statutory financial statements after appropriate tax adjustments, unless the enterprise is located in specially designated regions of cities for which more favorable effective tax rates apply.

In February 2004, the Company became a Sino-foreign joint venture. In August 2004, the state government granted the Company income tax exemptions as follows: 100% exemption for the first two years from September 2004 to August 2006, and 50% exemption for three years from September 2006 to August 2009. In addition, the Company is located in a Special Economic Zone and the PRC tax authority has offered it with a special income tax rate of 24%. With the approval of the local government, the Company is subject to income taxes at a reduced rate of 12% from September 2006 to August 2009, after the two-year 24% exemption for income taxes until its exemption and reduction periods expire in August 2009.

Beginning on January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DES”) and Foreign Investment Enterprises.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

The key changes are:

a.	The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs, except for High Tech companies who pays a reduced rate of 15%;
b.	Companies established before March 16, 2007 will continue to enjoy tax holiday treatment approved by local government for a grace period of the next 5 years or until the tax holiday term is completed, whichever is sooner.

The Company’s subsidiary, Weifang Shengtai was established before March 16, 2007, and therefore is qualified to continue to be taxed at the reduced rate as described above until the tax holiday term is completed. Starting on September 1, 2009, the Company was subject to a 25% income tax rate pursuant to the new income tax laws. During the three months ended March 31, 2011 and 2010, the provision for income taxes was $ 937,985 and $457,443, respectively. During the nine months ended March 31, 2011 and 2010, the provision for income taxes was $2,462,382 and $1,020,304, respectively.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the nine months:

	Nine months ended March 31,
	2011			2010
U.S. Statutory rates		34.0	%		34.0	%
Foreign income not recognized in USA		(34.0	)		(34.0	)
China income taxes		25.0			25.0
China income exemption (a)		-			(7.0	)
Other items (b)		2.0			5.0
Total provision for income taxes		27.0	%		27.0	%

(a)	The 7% represents the special tax credits from the local government due to government enforced regulation that expired in September 2009.
(b)	Other item is for operating expenses incurred by Shengtai that are not deductible in the PRC and expenses incurred by other subsidiaries that are not deductible on the consolidated level, which resulted in change in effective tax rate of (1% and 5% for the nine months ended March 31, 2011 and 2010, respectively.)

The estimated tax savings for the three months ended March 31, 2011 and 2010 amounted to $0 and $0, respectively. The net effect on basic earnings per share if the income tax had been applied would decrease basic earnings per share for the three months ended March 31, 2011 and 2010 by $0.00 and $0.00, respectively. The net effect on diluted earnings per share if the income tax had been applied would decrease diluted earnings per share for the three months ended March 31, 2011 and 2010 by $0.00 and $0.00, respectively. The estimated tax savings for the nine months ended March 31, 2011 and 2010 amounted to $0 and $126,322, respectively. The net effect on basic earnings per share if the income tax had been applied would decrease basic earnings per share for the nine months ended March 31, 2011 and 2010 by $0.00 and $0.01, respectively. The net effect on diluted earnings per share if the income tax had been applied would decrease diluted earnings per share for the nine months ended March 31, 2011 and 2010 by $0.00 and $0.00, respectively.

Shengtai Pharmaceutical, Inc. and Shengtai Holding, Inc. were incorporated in the United States and have incurred estimated net operating loss for income tax purposes for 2011. The estimated net operating loss carry forwards for United States income taxes amounted to $2,511,759 which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, from 2027 through 2030. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax benefit to reduce the asset to zero. The valuation allowance at March 31, 2011 amounted to $853,998.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

The Company has cumulative undistributed earnings of foreign subsidiaries of approximately $35,625,331 as of March 31, 2011, is included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if the Company concluded that such earnings will be remitted in the future.

Taxes payable

Taxes payable consisted of the following:

	Nine months ended March 31,
	2011		2010
VAT payable	$	373,466	$	1,622,859
Individual income tax withheld		7,950		423
Income tax payable		1,193,464		387,299
Housing property tax payable		17,456		10,098
Others		53,997		46,199
Total taxes payable	$	1,646,334	$	2,066,878

Note 8 - Commitments and Contingent liabilities

Guarantees

As of March 31, 2011, the Company has guaranteed $4.6 million short term loans for an unrelated party, Yuanli Chemical Engineering Inc. (“Yuanli”).

The Company is obligated to perform under the guarantee if Yuanli fails to pay principal and interest payments when due. The maximum potential amount of future undiscounted payments under the guarantee are about $4.8 million for Yuanli, including accrued interests. The Company did not record a liability for the guarantee because management knows Yuanli is current in its payment obligations, and the likelihood of the Company having to make good on the guarantee is remote.

Litigation

In the Company’s ordinary course of business, the Company may be subject to certain legal proceedings. After review and consultation with the Company’s legal counsel, management believes that the outcome of the legal matters will not have a materially adverse effect on the consolidated results of operations or consolidated financial position of the Company.

Note 9 - Shareholders’ equity

On November 9, 2010, the Company effected a 1-for-2 reverse stock split of its issued and outstanding shares of Common Stock; reducing the number of its authorized shares of Common Stock and Preferred Stock by the same reverse stock split ratio. The reverse stock split and the reduction of the number of authorized shares of Common Stock and Preferred Stock were authorized by the stockholders of the Company at its annual general meeting of stockholders held on October 26, 2010. As of November 12, 2010, the outstanding and issued shares were approximately 9,584,903 shares (prior to the reverse stock split the number outstanding was 19,169,805), before rounding up fractional shares. The authorized number of shares of Common Stock was reduced from 100,000,000 to 50,000,000, and the authorized number of shares of Preferred Stock was reduced from 5,000,000 to 2,500,000. These financial statements have been adjusted retroactively to reflect the reverse stock split.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Warrants

On May 15, 2007, in connection with the Share Purchase Agreement, the 4,375,000 warrants (“Investor Warrants”) carry an exercise price of $2.60 and a 5-year term. The Investor Warrants are callable if the Company’s shares trade at or above $8.00 per share for 20 consecutive trading days and underlying shares are registered for resale. The Investor Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction. During the year ended June 30, 2008, a total of 194,805 warrants were exercised from three shareholders.

Also in connection with the Share Purchase Agreement, the Company issued 218,750 warrants (“Placement Agent Warrants”) to Brill Securities, the Placement Agent. These Placement Agent Warrants have the same terms as the Investor Warrants. These warrants were issued on August 8, 2007.

Concurrent with the offering related to the Share Purchase Agreement, the Company issued 75,000 warrants to Chinamerica Fund, LLP and 25,000 warrants to Jeff Jenson (collectively, the “Lead Investor Warrants”) to compensate Chinamerica Fund LLP as the lead investor and for Jeff Jenson in assisting in providing the shell company, West Coast Car Company. These Lead Investor Warrants have the same terms as the Investor Warrants except that they have an exercise price of $0.01 per share. In June 2008, Jeff Jenson exercised the 25,000 warrants issued to him. In November 2008, Chinamerica Fund, LLP exercised the 75,000 warrants issued to the fund.

All Investor Warrants, Placement Agent Warrants, and Lead Investor Warrants meet the conditions for equity classification pursuant to ASC 815 (Originally issued SFAS No. 133 “Accounting for Derivatives”) and ASC 815 (Originally issued EITF 00-19), “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.” Therefore, these warrants were classified as equity and accounted for as common stock issuance cost.

In connection with November 2010 1-for-2 reverse stock split, all outstanding warrants will have 1-for-2 reverse split with the exercise price doubled.

	Warrants Outstanding		Warrants Exercisable		Weighted Average Exercise Price		Average Remaining Contractual Life
Outstanding, June 30, 2009		2,199,473		2,199,473	$	5.20	$	2.97
Granted		-		-		-		-
Forfeited		-		-		-		-
Exercised								-
Outstanding, June 30, 2010		2,199,473		2,199,473		5.20		2.22
Granted		-		-		-		-
Forfeited		-		-		-		-
Exercised		-		-		-		-
Outstanding, March 31, 2011		2,199,473		2,199,473	$	5.20	$	1.47

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Stock options

On January 4, 2008, the Company adopted “Shengtai Pharmaceutical, Inc. 2007 Stock Incentive Plan” (the “Stock Incentive Plan”). The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the fair value of the Company’s stock at the date of grant.

On May 14, 2008, the Company granted 500,000 stock options and 160,000 non-qualified stock options pursuant to the Stock Incentive Plan. All options have an exercise price of $3.34, which is the closing price on the date of grant, and expire five years after the date of grant. All options vest over a period of three years on a quarterly basis from the date of grant.

The Company uses the Black-Scholes option pricing model which was developed for use in estimating the fair value of options. Option pricing models require the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes option valuation model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS 123R using an option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows:

Weighted average risk-free interest rate		3.22	%
Expected term	4 years
Expected volatility		146	%
Expected dividend yield		0	%
Weighted average grant-date fair value per option		3.34

The volatility of the Company’s common stock was estimated by management based on the historical volatility; the risk free interest rate was based on Treasury Constant Maturity Rates published by the U.S. Federal Reserve for periods applicable to the estimated life of the options; and the expected dividend yield was based on the current and expected dividend policy. The fair value of the options was based on the Company’s common stock price on the date the options were granted. ASC 718 (Originally issued SFAS 123R) allows use of the “simplified” method to determine the term when other information is not available. Because the Company does not have sufficient applicable history of employee stock options activity, the Company uses the simplified method to estimate the life of the options by taking the sum of the vesting period and the contractual life and then calculating the midpoint which is the estimated term of the options.

In the Chief Financial Officer Employment Agreement entered into on March 1, 2010 between the Company and Mr. Hu Ye, the Chief Financial Officer, the Company granted Mr. Hu Ye an option to purchase 300,000 shares of common stock of the Company. The shares vest over 3 years starting March 1st, 2010 and terminating on the third anniversary of the date of issuance of this option. The Company valued the shares at $2.60 per share, which represents 130% of the fair market value being calculated in the private placement price on May 15th, 2007. The fair values of stock options granted to the CFO were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Weighted average risk-free interest rate		2.79	%
Expected term	6.5 years
Expected volatility		149	%
Expected dividend yield		0	%
Weighted average grant-date fair value per option		2.60

The Company terminated the Chief Financial Officer Employment Agreement between the Company and Mr. Hu Ye in December 2010, and the 300,000 options granted were forfeited.

In connection with November 2010 1-for-2 reverse stock split, all outstanding options will have 1-for-2 reverse split with the exercise price doubled.

The stock option activity was as follows:

	Options Outstanding			Weighted Average Exercise Price		Average Intrinsic Value
Outstanding, June 30, 2009		330,000		$	6.68	$	-
Granted		150,000			5.20		-
Forfeited		(137,500	)		6.68		-
Exercised		-			-		-
Outstanding, June 30, 2010		347,500			6.04		-
Granted		-			-		-
Forfeited		(167,500,	)		5.20		-
Exercised		-			-		-
Outstanding, March 31, 2011		175,000		$	6.68	$	-

Following is a summary of the status of options outstanding at March 31, 2011:

Average Exercise Price			Outstanding Options		Average Remaining Contractual Life				Average Exercise Price				Exercisable Options
$	6.68		175,000			2.12			$	6.68				175,000

For the three and nine months ended March 31, 2011, $0 and $183,480 were expensed and recorded as compensation expense in the Company’s income statements, respectively. For the three and nine months ended March 31, 2010, $158,818 and $476,454 were expensed as compensation expense in the Company’s income statements. As of March 31, 2011, approximately $0 of estimated expense with respect to unvested stock-based awards has yet to be recognized and will be recognized as an expense over the employee's remaining weighted average service period.

Note 10 - Statutory reserves

The laws and regulations of the PRC require that before a Sino-foreign cooperative joint venture enterprise distributes profits to its partners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations in proportions determined at the discretion of the board of directors, after the statutory reserves. The statutory reserves include the surplus reserve fund, and the enterprise fund. These statutory reserves represent restricted retained earnings.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Surplus reserve fund

The Company is required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.

The transfer to this reserve must be made before distribution of any dividends to shareholders. For the three months ended March 31, 2011 and 2010, the Company transferred $297,206 and $16,638 to this reserve respectively. For the nine months ended March 31, 2011 and 2010, the Company transferred $754,525 and $281,418 to this reserve respectively. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Pursuant to the Company’s articles of incorporation, the Company is to appropriate 10% of its net profits as statutory surplus reserve up to $7,500,000. As of March 31, 2011 the Company had appropriated to the statutory reserve approximately $3,953,000. The Company plans to contribute $3,547,000 in the future.

Enterprise fund

The enterprise fund may be used to acquire fixed assets or to increase the working capital to expend on production and operation of the business. No minimum contribution is required and the Company has not made any contribution to this fund.

Note 11 – Sale Leaseback

Capital lease

On December 10, 2008, the Company entered into a sale leaseback arrangement and sold part of its equipment to an unrelated third party for approximately $5,134,500. The leaseback has been accounted for as a capital lease with the same third party to lease the same equipment for 4 years, with total payments of approximately $8,119,845. The title of the equipment will be transferred back to the Company upon the last payment and after the third party receives a one time payment of $44,010 from the Company. A one time processing fee of $51,345 was paid by the Company related to this lease. A loss of $202,138 realized on this transaction has been recognized in non-operating expense since the carrying value of the equipment sold exceeded its fair value used as the sale price. The lease matured in July 2010, and the total payments of principal and interest are $8,285,895.

Note 12 - Retirement benefit plans

Regulations in the PRC require the Company to contribute to a defined contribution retirement plan for the benefit of all permanent employees. The Company is required to make contributions to the state retirement plan at 15% to 20% of the monthly base salaries of all current permanent employees. The PRC government is responsible for the administration and benefit liability to retired employees. For the nine months ended March 31, 2011 and 2010, the Company made contributions in the amounts of $276,038 and $265,220, respectively to the Company’s retirement plan. For the three months ended March 31, 2011 and 2010, the Company made contributions in the amounts of $107,032 and $86,778, respectively to the Company’s retirement plan.

Note 13 - Subsequent events

In April 2011, the Company obtained a short term loan of $1,826,400 from Industrial and Commercial Bank of China, due December 2012; monthly interest only payments; interest rates are 6.4236% per annum, guaranteed by an unrelated third party, unsecured.

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

In April 2011, the Company obtained a short term loan of $1,065,400 from Industrial and Commercial Bank of China, due March 2012; monthly interest only payments; interest rates are 6.06% per annum, guaranteed by an unrelated third party, unsecured.

In April 2011, the Company obtained a short term loan of $913,200 from Bank of China, due April 2012; monthly interest only payments; interest rates are 5.454% per annum, guaranteed by an unrelated third party, unsecured.

In April 2011, the Company has returned $913,200 short term loan from Bank of China.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following is a discussion and analysis of the financial condition and results of operations of Shengtai Pharmaceutical, Inc., the ("Company”) and should be read in conjunction with the Company’s financial statements and related notes contained in this Form 10-Q. This Form 10-Q contains forward looking statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may,” "will,” "expect,” "anticipate,” "estimate,” "believe,” "continue,” or other similar words. You should read statements that contain these words carefully because they discuss the Company’s future expectations, contain projections of the Company’s future results of operation or financial condition or state other “forward-looking" information. The Company believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is unable to accurately predict or control. Those events as well as any cautionary language in this Form 10-Q provide examples of risks, uncertainties and events that may cause the Company’s actual results to differ materially from the expectations the Company describes in its forward-looking statements. You should be aware that the occurrence of the events described in this Form 10-Q could have a material adverse effect on the Company’s business, operating results and financial condition. Actual results may differ materially from current expectations.

Overview

We are, through our wholly owned subsidiary, Shengtai Holding Inc., and its wholly owned subsidiary in the People's Republic of China, the ("PRC”), Weifang Shengtai Pharmaceutical Co., Ltd., ("Weifang Shengtai") a leading manufacturer and supplier of pharmaceutical grade glucose in the PRC. We believe that we are a market leader and preferred domestic supplier of pharmaceutical grade glucose, with about 40% market share in Mainland China. We also manufacture glucose, cornstarch and other products for the food, beverage and other industries.

As of January 12, 2011, we completed an expansion of our cornstarch production facility and have now increased our constarch production capacity from 300,000 metric tons to 400,000 metric tons. The new production line is used to manufacture non-pharmaceutical grade cornstarch products. This facility is located next to our glucose production plants. We believe the new cornstarch facility will help us meet the increasing demand for our cornstarch products and their byproducts. By using the cornstarch manufactured from our own cornstarch production facility, we can ensure our glucose products’ quality and consistency. Also, because our cornstarch manufacturing facility is located next to our glucose manufacturing facilities, we are able to eliminate shipping costs and lower glucose products’ manufacturing costs.

We have built an additional warehouse to store purchased corn. The warehouse has been completed in April 2011 and can be used to store an additional 22,000 tons of corn. As of April, 2011, we have the capacity to store 36,000 tons of corns. We are also in the process of building two additioanl corn warehouses, each with a 7,000 ton capacity. We expect the warehouses to be completed in 2011. After the completion of construction, we will have the capacity to store 50,000 tons of corn. Because corn prices have been increasing since 2009, the expansion of our warehouses' capacity will allow us to store more corn and better control the cost of production.

During the three months ended March 31, 2011, we manufactured a total of 72,957 metric tons of cornstarch, of which 37,694 metric tons were used to satisfy our own glucose production needs. The excess cornstarch was or will be sold to outside customers in the pharmaceutical, food and beverage and other industries. Cornstarch sales amounted to $13,969,076 and accounted for 33.51% of our total net sales for the three months ended March 31, 2011.

During the nine months ended March 31, 2011, we manufactured a total of 223,893 metric tons of cornstarch, of which 111,428 metric tons were used to satisfy our own glucose production needs. The excess cornstarch was or will be sold to outside customers in the pharmaceutical, food and beverage and other industries. Cornstarch sales amounted to $42.14 million and accounted for 33.61% of our total net sales for the nine months ended March 31, 2011.

Our business may be severely affected by movements in the commodity markets. Corn is the principal raw material for our cornstarch and the price of cornstarch as a commodity tends to follow the price of corn. Corn price has been continually rising for the last four years. Corn prices for the twelve months ended March 31, 2011 were approximately 15.45% higher than for the same period in 2010. Corn prices for the three months ended March 31, 2011 were approximately 13.77% higher than for the same period in 2010. Corn prices for the nine months ended March 31, 2011 were approximately 12.68% higher than for the same period in 2010. While it is hard to accurately predict the trend of corn prices, we remain focused on improving our pricing ability and maintaining a stable profit. In the quarter ended March 31, 2011, we completed a new storage facility for corn, and are currently building more corn storage facilities to further improve our ability to store raw material and reduce the impact of fluctuating corn prices.

The Chinese government has placed its own corn reserve into the market to help maintain corn prices. In March 2011, our local government set up a local food reserve company to enhance corn storage and to help maintian corn prices. We believe that these government policies have had and will continue to have mixed effects on our operations. Stable corn prices will help maintain the availability of raw materials and tend to stabilize our gross profit margin over time, although market and economic conditions may continue to affect our operations.

During the three months ended March 31, 2011, we sold a total of 30,197 metric tons of glucose, a decrease of 2,534 metric tons compared to the 32,731 metric tons of glocuse sold during the same period in 2010. During the three months ended March 31, 2011, our sales of pharmaceutical grade glucose and other glucose products was $16.48 million, or 39.53%, of our net sales. During the same period in 2010, our sales of pharmaceutical grade glucose and other glucose products was $14.66 million, or 49.85%, or our net sales.

During the nine months ended March 31, 2011, we sold a total of 102,520 metric tons of glucose, an increase of 4,920 metric tons compared to 97,600 metric tons of glucose sold in the nine months ended March 31, 2010. Our sales of pharmaceutical grade glucose and other glucose products was $51.32 million, or 40.93%, of our net sales. During the same period in 2010, our sales of pharmaceutical grade glucose and other glucose prodcuts was $42.06 million, or 51.90%, of our net sales. During the three months ended March 31, 2011, we sold a total of 30,197 metric tons of glucose, a decrease of 2,534 metric tons compared to the 32,731 metric tons of glocuse sold during the same period in 2010. During the three months ended March 31, 2011, our sales of pharmaceutical grade glucose and other glucose products was $16.48 million, or 39.53%, of our net sales. During the same period in 2010, our sales of pharmaceutical grade glucose and other glucose products was $14.66 million, or 49.85%, or our net sales.

In addition to our pharmaceutical glucose and cornstarch products, we also produce other products such as dextrin, corn embryo, fibers, corn meals, and phytin, which are used in the pharmaceutical industry, for food and beverages, and for other production purposes. The net sales generated from these products was $31.92 million, and constituted approximately 25.46% of our total net sales for the nine months ended March 31, 2011. The net sales generated from these products was $19.90 million, and constituted approximately 24.55% of our total net sales for the nine months ended March 31, 2010. The net sales generated from these products was $11.24million, and constituted approximately 26.96% of our total net sales for the three months ended March 31, 2011. The net sales generated from these products was $7.28 million, and constituted approximately 24.77% of our total net sales for the three months ended March 31, 2010.

Management believes that better living standards in China should lead to higher consumption of our pharmaceutical glucose products in the PRC, especially the Dextrose Monohydrate Transfusion Solution. In January 2009, the Chinese government announced its medical stimulus plan to spend a total of 850 billion RMB, or approximately $123 billion, by 2011 to provide universal primary medical services. This plan, together with the continuing economic growth in China, the rising purchasing power of China's domestic market, as well as the public awareness of quality healthcare products, has increased demand for glucose, which is a basic and relatively low-cost standard for healthcare in clinics and hospitals. We expect continued increase of demand of our glucose products due to an expected increase in the number of hospitals and clinics being built in China.

We believe that production capacity and product quality are key factors in maintaining and improving our competitive position and enhancing our long-term competitiveness. As a result, we emphasize (i) product quality control, (ii) enhancement of operating efficiency and employee competence, (iii) expansion of geographical coverage and diversification of customer base and (iv) expansion of our production capacity utilization.

We have a three-tier quality control system and a well-equipped quality inspection center to ensure timely detection and reprocessing of non-conforming products.

Our glucose production facility passed GMP inspection and our facilities and many of our products are fully certified for GMP, IS09001:2000 and HACCP international quality standards and globally certified Halal, Kosher and NON-GMO IP.

Our sales network presently covers almost all provinces of Mainland China except the Tibet Autonomous Region.

For the nine months ended March 31, 2011, we exported products to around 67 countries, with Korea, Indonesia, Thailand, Bangladesh and Pakistan as leading purchasers. For the nine months ended March 31, 2011, our international sales comprised approximately 20.40% of our total net sales. During the same period in 2010, our international sales comprised approximately 22.01% of our total net sales. For the three months ended March 31, 2011, our international sales comprised approximately 27.32% of our total net sales. During the same period in 2010, our international sales comprised approximately 25.86% of our total net sales.

Our target customers are drug makers, medical supply companies, medical supply exporters and food and beverage companies. We constantly strive to broaden and diversify our customer base. We believe that a broader customer base will mitigate our reliance on certain major customers. We believe that a broader market for our products can increase demand for our products, reduce our vulnerability to market changes and provide additional areas of growth in the future. For the nine months ended March 31, 2011, our top ten customers accounted for 37.63% of our total net sales. During the nine month period ended March 31, 2010, our top ten customers accounted for 30.65% of our total net sales. For the three months ended March 31, 2011, our top ten customers accounted for 37.58% of our total net sales. For the three months ended March 31, in 2010, our top ten customers accounted for 41.21% of our total net sales.

Results of Operations

Three Months Ended March 31, 2011 Compared with Three Months Ended March 31, 2010

The following table shows our operating results for the three months ended March 31, 2011 and 2010:

	Three months ended March 31, 2011			Three months ended March 31, 2010
Net Sales	$	41,686,161		$	29,407,287
Cost of Sales		35,258,900			23,750,131
Gross Profit		6,427,261			5,657,155
Selling, General and Administrative Expenses		2,491,968			3,078,030
Income From Operations		3,935,293			2,579,125
Other Expense, Net		(692,129	)		(1,143,558	)
Income Before Provision For Income Taxes		3,243,162			1,435,568
Provision For Income Taxes		937,985			457,443
Net Income	$	2,305,177		$	978,125

The following table shows the breakdown of production and sales by product categories, and between self-use by Weifang Shengtai and the sales of cornstarch, for the three months ended March 31, 2011 and 2010:

Products	Metric Tons Three months ended March 31, 2011			Metric Tons Three months ended March 31, 2010			Net Sales (%) Three months ended March 31, 2011			Net Sales (%) Three months ended March 31, 2010

								16,479,475		$	14,659,235
Glucose–Sales		30,197			32,731		$	(39.53	)%	$	(49.85	)%

Cornstarch-Self use		37,694(51.67	)%		25,169(51.99	)%
								13,969,076			7,465,044
Cornstarch-Sales		35,263(48.33	)%		23,244(48.01	)%	$	(33.51	)%	$	(25.39	)%

Total Cornstarch		72,957(100	)%		48,413(100	)%
								11,237,610			7,283,008
Other Sales							$	(26.96	)%	$	(24.77	)%
								46,686,161			29,407,287
Total Sales							$	(100	)%	$	(100	)%

Net sales for the three months ended March 31, 2011 were $41,686,161, an increase of $12,278,874, or 41.75%, compared with $29,407,287 for the same period in 2010. The increase in net sales primarily resulted from increased demand of our products in all product lines and increased unit selling prices of our glucose and cornstarch products. For the three months ended March 31, 2011 compared to the same period in 2010, the quantity of our glucose products sold decreased about 4.27% from 31,545 metric tons to 30,197 metric tons, while the average unit selling price of our glucose products increased about 13.91% from $3,169 to $3,610. For the three months ended March 31, 2011 compared to the same period in 2010, the quantity of our cornstarch products sold increased about 51.71% from 23,244 metric tons to 35,263 metric tons , while the average unit selling price of our cornstarch products increased about 19.70% from $2,190 to $2,622. Particular mention must be made for our Slurry sales which increased approximately $3,171,000 or 360% for the three months ended March 31, 2011 compared to the same period last year. The increase is due to higher production of byproducts and higher demand. Slurry is a byproduct produced in the process of cornstarch production that when dried, becomes cornstarch. For the three months ended March 31, 2011 compared to the same period last year, the quantity of our other products sold increased about 51.65% from 20,991 metric tons to 31,833 metric tons , while the average unit selling price of our other products decreased about 1.11% from $2,364 to $2,338. The increase in domestic sales is due to the improved economic environment compared with the same period last year, increased demand for glucose products due to the execution of the government stimulus plan, as well as our efforts to develop new clients.

Net sales from exports for the three months ended March 31, 2011 increased approximately 49.78% from $7,604,233 to $11,389,746, compared with the same period in 2010. The increase is mainly attributable to the recovery of the global economy resulting in an increase in the international demand for our glucose products compared to the same period last year.

Cost of sales for the three months ended March 31, 2011 was $35,258,900, an increase of $11,508,769, or 48.46%, compared with 23,750,131 for the same period in 2010. The increase in cost of sales was in line with the increase in net sales volume as well as in line with the increase in the price of corn, our main raw material.

Gross profit for the three months ended March 31, 2011 was $6,427,261, an increase of $770,106, or 13.61%, compared with 5,657,155 for the same period in 2010. The increase of gross profit is mainly in line with the increased sales as well as increased sales prices, offset by increased cost of goods sold mainly caused by increased raw material prices.

Gross profit margin for the three months ended March 31, 2011 was 15.42%, a decrease from 19.24% for the same period in 2010. The reason for the decrease of gross profit margin is mainly because the price of corn, our main raw material, increased approximately 13.77% for the three months ended March 31, 2011 compared to the same period last year. Average sales price for our products increased 7.15% for the three months ended March 31, 2011 compared to the same period last year. Average sales prices for the three months ended March 31, 2011 increased 13.91% and 19.70% for glucose and cornstarch products, respectively, compared to the same period last year. Average sales price of other products decreased 1.11% for the three months ended March 31, 2011 compared to the same period last year. The decrease of gross profit margin is due to the price of corn increasing more than the average sales price and also due to the change of product mix. In the three months ended March 31, 2011, more low profit products, such as Slurry, were sold compared to the same period last year when more profitable products, such as glucose, accounted for a larger percentage of total revenue. We believe that increased sales of cornstarch and byproducts will bring more positive cash flow because sales will increase as the collection rate remains the same. We are also working on improving pricing and profit control to improve gross profit margin. At the same time, we have built and are building raw material storage facilities to reduce the impact of fluctuation on the price of our raw materials. We are focused on pricing improvement as well as locking in lower cost of material.

For the three months ended March 31, 2011, selling, general and administrative expenses were $ 2,491,968, a decrease of $586,062, or 19.04%, compared to $3,078,030 for the three months ended March 31, 2010. Selling expenses were $1,431,042 and $1,196,102 for the three months ended March 31, 2011 and 2010, respectivley. The increase is mainly due to increased commission and increased shipping and handling expenses due to increased sales and increased shipping expenses such as gas expenses. General and administrative expenses were $1,060,926 and $1,881,928 for the three months ended March 31, 2011 and 2010, respectivley. The decrease is mainly due to decreased expenses as a public company for the three months ended March 31, 2011, such as decreased option expenses due to options being fully vested and decreased professional expenses due to control of our expenses.

We incurred $0 and $158,818 non-cash stock option expenses for the three months ended March 31, 2011 and 2010, respectively. The option expenses are included in selling, general and administrative expenses.

Net income for the three months ended March 31, 2011 was $2,305,177, an increase of $1,327,052 compared with $978,125 for the same period in 2010. The increase in net income was primarily attributable to the increased sales in our operations, offset by increased cost of goods sold and increased income tax .

Nine Months Ended March 31, 2011 Compared with Nine Months Ended March 31, 2010

The following table shows our operating results for the nine months ended March 31, 2011 and 2010:

	Nine months ended March 31, 2011,			Nine months ended March 31, 2010
Net Sales	$	125,375,589		$	81,043,203
Cost of Sales		107,029,421			67,595,344
Gross Profit		18,346,168			13,447,859
Selling, General and Administrative Expenses		7,175,162			7,358,396
Income From Operations		11,171,006			6,089,464
Other (Expense) Income, Net		(2,063,895	)		(2,254,976	)
Income Before Provision For Income Taxes		9,107,111			3,834,488
Provision For Income Taxes		2,462,382			1,020,304
Net Income	$	6,644,729		$	2,814,184

The following table shows the breakdown of production and sales by product categories, and between self-use by Weifang Shengtai and the sales of cornstarch, for the nine months ended March 31, 2011 and 2010:

Products	Metric Tons Nine months ended March 31, 2011			Metric Tons Nine months ended March 31, 2010			Net Sales (%) Nine months ended March 31, 2011			Net Sales (%) Nine months ended March 31, 2010

							$	51,316,631		$	42,060,458
Glucose–Sales		102,520			97,600			(40.93	)%		(51.90	)%

Cornstarch-Self use		111,428(49.77	)%		90,130(66.05	)%
							$	42,139,921		$	19,085,135
Cornstarch-Sales		112,465(50.23	)%		59,972(39.95	)%		(33.61	)%		(23.55	)%

Total Cornstarch		223,893			50,102
							$	31,919,037		$	19,897,610
Other Sales								(25.46	)%		(24.55	)%
							$	125,375,589		$	81,043,203
Total Sales								(100	)%		(100	)%

Net sales for the nine months ended March 31, 2011 were $125,375,589, an increase of $44,332,386, or 54.70%, compared with $81,043,203 for the same period in 2010. The increase in net sales primarily resulted from increased demand of our products in all product lines and increased unit selling prices of our glucose and cornstarch products. For the nine months ended March 31, 2011 compared to the same period last year, the quantity of our glucose products sold increased about 2.59% from 99,937 metric tons to 102,520 metric tons , while the average unit selling price of our glucose products increased about 16.42% from $2,870 to $3,341. For the nine months ended March 31, 2011 compared to the same period last year, the quantity of our cornstarch products sold increased about 86.67% from 60,247 metric tons to 112,466 metric tons, while the average unit selling price of our cornstarch products increased about 15.79% from $2,160 to $2,501. In particular, our Slurry sales increased $10,203,000 or 610% for the nine months ended March 31, 2011 compared to the same period last year. The increase is due to higher production of byproducts and higher demand due to improvment in the global economic environment. In particular, the demand for our cornstarch products increased significantly. The economic crisis has caused many cornstarch factories to lower their prices or to shut down production due to a decrease in demand internationally for their products which in turn created tougher domestic competition. Companies such as ourselves who have been able to survive the economic crisis are embracing this new business environment with fewer competitors. For the nine months ended March 31, 2011 compared to the same period last year, the quantity of our other products sold increased about 61.79% from 59,048 metric tons to 95,536 metric tons, while the average unit selling price of our other products decreased about 2.87% from $2,296 to $2,230. The increase in domestic sales is due to the improved economic environment compared with the same period last year, increased demand for glucose products due to the government stimulus plan which invested in healthcare by building more clinics and providing more healthcare coverage, as well as our efforts to develop new clients.

Net sales from exports for the nine months ended March 31, 2011 increased approximately 43.41% compared with 17,837,763 for the same period in 2010. The increase is mainly attributable to the recovery of the global economy resulting in an increase in the international demand for our glucose products compared to the same period last year.

Cost of sales for the nine months ended March 31, 2011 was $107,029,421, an increase of $39,434,077, or 58.34%, compared with 67,595,344 for the same period in 2010. The increase in cost of sales was in line with the increase in net sales volume as well as in line with the increase in price of corn, our main raw material.

Gross profit for the nine months ended March 31, 2011 was $18,346,168, an increase of $4,898,309, or 36.42%, compared with 13,447,859 for the same period in 2010. The increase of gross profit is mainly in line with the increased sales as well as increased sales prices, offset by increased cost of goods sold mainly caused by increased raw material prices.

Gross profit margin for the nine months ended March 31, 2011 was 14.63%, a decrease of 16.59% from the same period in 2010. The reason for the decrease of gross profit margin is mainly because the price of corn, our main raw material, increased approximately 12.68% for the nine months ended March 31, 2011 compared to the same period last year. Average sales price of our products increased 6.92% for the nine months ended March 31, 2011 compared to the same period last year. Average sales prices for the nine months ended March 31, 2011 increased 16.42% and 15.79% for glucose and cornstarch products, respectively, compared to the same period last year. Average sales price of other products decreased 2.87% for the nine months ended March 31, 2011 compared to the same period last year. The decrease of gross profit margin is due to the price of corn increasing more than the average sales price and also due to the change in product mix. In the nine months ended March 31, 2011, more low profit products, such as Slurry, were sold compared to the same period last year when more profitable products, such as glucose, accounted for a larger percentage of total revenue. We believe that increased sales of cornstarch and byproducts will bring more positive cash flow to the Company because sales will increase as the collection rate remains the same. We are also working on improving pricing and profit control to improve gross profit margin. At the same time, we have built and are building raw material storage facilities to reduce the impact of fluctuation on the price of our raw materials. The Company is focusing on pricing improvement as well as locking in lower cost of material.

For the nine months ended March 31, 2011, selling, general and administrative expenses were $7,175,162, a decrease of $183,234, or 2.49%, compared to $7,358,396 for the nine months ended March 31, 2010. Selling expenses were $4,416,101 and $3,466,889 for the nine months ended March 31, 2011 and 2010, respectivley. The increase is mainly due to increased commission and increased shipping and handling expenses due to increased sales and increased shipping expenses such as gas expenses. General and administrative expenses were $2,759,061 and $3,891,507 for the nine months ended March 31, 2011 and 2010, respectively. The decrease is mainly due to decreased expenses as a public company for the three months ended March 31, 2011, such as decreased option expenses due to options being fully vested and decreased professional expenses due to the control of our expenses.

We incurred $183,480 and $476,454 non-cash stock option expenses for the nine months ended March 31, 2011 and 2010, respectively. The option expenses are included in selling, general and administrative expenses.

Net income for the nine months ended March 31, 2011 was $6,644,729, an increase of $3,830,545, or 136.12%, compared with $2,814,184 for the same period in 2010. The increase in net income was primarily attributable to the increased sales in our operations, offset by increased cost of goods sold and increased income tax, .

Liquidity and Capital Resources

Operating Activities

Net cash provided by operating activities for the nine months ended March 31, 2011 was $2,571,283 , a decrease of 64.70%, or $4,774,487 from $7,345,770 provided by operating activities for the same period in 2010. The decrease of cash provided by the operating activities is mainly due to decreased accounts payable of approximately $3 million. During the three months ended March 31, 2011, we have paid more in advance compared to the same period last year in order to lock in lower prices. The tighter monetary policies also cause more vendors to require larger advanced payments.

Investing Activities

Net cash used in investing activities for the nine months ended March 31, 2011 was $5,488,589, a decrease of $6,034,837, or 52.37%, from $11,523,426 provided by investing activities for the same period in 2010. The decrease of cash used in investing activities is mainly due to less expenditure on plant and equipment and construction in process.

Financing Activities

Net cash used for financing activities for the nine months ended March 31, 2011 was $234,617, compared with $ 6,298,897 used in financing activities for the same period in 2010. The decrease of cash used in financing activities is mainly due to a decrease of restricted cash.

Loans

Other than our private placement financing in 2007, we have financed our operations primarily through bank loans and operating income. We have a total of $46,360,120 in short-term loans outstanding as of March 31, 2011. The terms of all these short-term loans are for one year. We have never defaulted on any of these loans.

We have $0 of non-current payables as of March 31, 2011 and $3,346,336 as of June 30, 2010.

Guarantees

We have guaranteed certain borrowings of other unrelated third parties including short-term bank loans. The total guaranteed amounts were $4.6 million as of March 31, 2011. The total amount of guarantees provided to us by unrelated third parties is $4.6 million as of March 31, 2011.

Future Cash Commitments and Needs

We estimate the need for capital to run new production facilities. The exact amount will be determined based on both the market demand for our products and the time needed for these facilities to run at full capacity. We will carefully review our financial condition and consider financing either with internally generated cash, bank loans or additional equity. We expect that our proceeds from operating cash flows and our cash balances, together with amounts available under our loans, will be sufficient to meet our anticipated liquidity needs for the next twelve months.

Critical Accounting Policies and Estimates

We have disclosed in the notes to our financial statements those accounting policies that we consider to be significant in determining our results of operations and our financial position which are incorporated by reference herein. We believe that the following reflect the more critical accounting policies that currently affect our financial condition and results of operations.

Revenue recognition

We recognize revenue when the goods are delivered, title has passed, pricing is fixed and collection is reasonably assured. Sales revenue represents the invoiced value of goods, net of value-added tax ("VAT"), and estimated returns of product from customers. Most of our products sold in the PRC are subject to a VAT rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by VAT paid by us on raw materials and other materials included in the cost of producing our finished products and certain freight expenses. We allow our customers to return products only if our products are later determined by us to be ineffective. Based on our historical experience over the past three years, product returns have been insignificant throughout all of our product lines. Therefore, we do not estimate deductions or allowance for sales returns. Sales returns are taken against revenue when products are returned from customers. Sales are presented net of any discounts given to customers.

Use of estimates

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.

Accounts receivable

In the normal course of business, we extend credit to our customers without requiring collateral or other security interests. Management reviews our accounts receivables at each reporting period to provide for an allowance against accounts receivable for an amount that could become uncollectible. This review process may involve the identification of payment problems with specific customers. We estimate this allowance based on the aging of the accounts receivable, historical collection experience, and other relevant factors, such as changes in the economy and the imposition of regulatory requirements that can have an impact on the industry. These factors continuously change, and can have an impact on collections and our estimation process. These impacts may be material.

Certain accounts receivable amounts are charged off against allowances after a designated period of collection efforts. Subsequent cash recoveries are recognized as income in the period when they occur.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method with a 3% residual value over the estimated useful lives of the assets.

Foreign currency translation

Our functional currency is the Renminbi (or "RMB"). Foreign currency transactions are translated at the applicable rates of exchange in effect at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. Revenues and expenses are translated at the average exchange rates in effect during the reporting period. The average exchange rate in effect during the reporting period for the three months ended March 31, 2011 was 6.57 RMB to $1.00.

Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as "Accumulated Other Comprehensive Income.” Gains and losses resulting from foreign currency translations are included in Accumulated Other Comprehensive Income.

Recently Issued Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Mr. Qingtai Liu, the Company’s Chief Executive Officer, and Mr. Yongqiang Wang, the Company’s current financial controller, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Report. Based on that evaluation which, among other things, identified personnel turnover in the areas concerned, mainly referring to our chief financial officer’s resignations during the last two years, the Company’s officers concluded that disclosure controls and procedures were not effective and was not adequatly designed to ensure that the information required to be disclosed by the Company in the reports the Company submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to the Company’s chief executive officer and chief financial officer in a manner that allowed for timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2011, there has been no material change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Such limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures, such as simple errors or mistakes or intentional circumvention of the established process.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company becomes involved in various lawsuits and legal proceedings that arise in the ordinary course of business. While the ultimate outcome of these lawsuits and legal proceedings cannot be determined at this time, it is the opinion of management that the resolution of these actions will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

Not Applicable.

Item 6. Exhibits.

Exhibit No.		Title of Document

31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 16, 2011

	SHENGTAI PHARMACEUTICAL, INC.

	By:	/s/ Qingtai Liu
		Qingtai Liu
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Yongqiang Wang
		Yongqiang Wang
		Financial Controller
		(Principal Financial Officer)

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